This is a competitive renewal of an R01 project titled Schizophrenia, Prefrontal Cortex, and Emotion Regulation. In our current funding cycle, we tested the hypothesis that at least a subset of emotional disturbances in schizophrenia reflect deficits in the ability to use goals and context information maintained in dorsolateral prefrontal cortex (DLPFC) to and modulate emotional processing. Consistent with this hypothesis, the work conducted under the current funding cycle demonstrated that individuals with schizophrenia show: 1) relatively intact self-reports of valence and arousal in response to a range of affect producing stimuli; 2) relatively intact activity in frontal and limbic regions in response to emotionally evocative stimuli when emotional regulation is not required; and 3) altered DLPFC and anterior cingulate activity when required to use goals and/or context information to modulate the influence of affective stimuli on cognitive processing. Importantly, our data also suggest that individuals with schizophrenia have deficits in the ability to use affective information to regulate or facilitate goal directed behavior. Specifically, individuals with schizophrenia seem to have difficulties using internal representations of emotional experiences, previous rewards, and motivational goals to drive current and future behavior that should allow them to obtain desired outcomes. Such deficits have major implications for understanding functional outcome in schizophrenia, as many individuals with this illness seem unable to engage in goal directed behavior (e.g., social, occupational, and educational pursuits) that would bring them into contact with potentially enjoyable experiences and positive outcomes, despite an apparently intact ability to enjoy those experiences once achieved. Clinically, such disturbances manifest as abnormalities in motivation, social engagement, and even anhedonia, or the self-reported inability to experience pleasure (or at least to anticipate experiencing pleasure). We hypothesize that individuals with schizophrenia have impairments in the ability to use reward information to guide behavior because they cannot translate such information into action plans, due to deficits in DLPFC function. However, we need to determine whether such a deficit in reward translation is primary, or simply secondary to deficits in other parts of the system that identify, maintain, and update information about rewards. For example, there is mixed evidence as to whether individuals with schizophrenia can learn cues that predict reward, or compute and update value/utility representations that drive action plans. The goal of the current study is to use state-of-the art functional neuroimaging and behavioral paradigms derived from the affective science literature to examine the integrity of the components of the neural systems linking rewards and actions. We feel it is critical to examine the function of the different components of the system in the same study in the same individuals so that we can address issues related to heterogeneity in symptom expression that may be leading to conflicting results across different studies in the literature. For each of the Specific Aims, we ask: 1) do individuals with schizophrenia differ from either community controls; and 2) do the non-psychotic siblings of individuals with schizophrenia also show deficits compared to controls (as a way to study processes associated with liability for schizophrenia unconfounded by medication status).